The US Market Will Benefit From China’s Tech Growth

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Editor’s note:Si Shen is the co-founder & CEO of PapayaMobile, the Beijing-based mobile company that operates AppFlood, the largest global mobile RTB ad network out of China.Before Papaya, Si worked on Google’s mobile team in the U.S. and China.

This has been a whirlwind year for Chinese tech companies. Alibaba is in the spotlight as it’s on track for an initial public offering on the New York Stock Exchange in an IPO that’s expected to raise up to $20 billion (at a valuation of up to $200 billion).

But a couple of years ago, “Alibaba” and even “Tencent” were names few would have recognized. In fact it wasn’t until 2014 that suddenly these companies were the new darlings transplanted from China at the center of the newest tech wave. Some taken aback by China’s sudden presence in the U.S. aren’t quite sure how to handle the newcomer. Is China a threat or a boon? The way I see it, China is an asset.

China’s New York IPOs benefit the U.S. economy

A string of other Chinese firms including JingDong, Sina Weibo, and Jumei are just some of those that have taken up residence in New York. China’s tech firms have contributed as much as 63 percent of the total IPO money raised in the U.S., according to Bloomberg.

A secondary Bloomberg report adds that Chinese IPOs in the 12 months leading up to June 2014 returned an average of 44 percent. “If you look at the technology and Internet sector, investors were getting hit hard in the U.S. during the first half of the year and needed to search for returns elsewhere. China is the logical next stop,” Kurt Ayling, a Susquehanna Financial Group LLP tech analyst, tells Bloomberg.

As Chinese companies display their competitive luster, and Americans feel the squeeze, IPOs on U.S. soil are a boon to U.S. investors, thereby adding stimulus to the U.S. economy.

China’s U.S. investments

Regardless of motives, a secondary benefit the U.S. stands to gain from China is the sudden capital injections from China’s major technology firms, including Tencent and Alibaba. U.S. startups are suddenly Chinese M&A targets. In fact, Chinese firms have invested in U.S. tech companies to the tune of $6 billion in 2014 (so far), according to the Rhodium Group.

For instance, Snapchat, Fab, Plain Vanilla (famed for QuizUp), and Whisper are just a few of Tencent’s 15 deals in U.S. tech firms in the last three years. Alibaba in parallel has been on a spending spree of late in preparation for its IPO with seven acquisitions and investments in U.S. startups (one of which includes messaging app Tango) since 2013.

And don’t forget that IBM recently sold off its x86 server manufacturing arm to Chinese hardware manufacturer Lenovo, which, in the past, has purchased and turned around IBM’s ailing PC business into the largest PC company in the world. Lenovo also recently purchased Motorola.

In the wake of these investments and acquisitions, there’s an additional added benefit. Chinese acquisitions are spurring job growth.

“In most of these cases where Chinese companies come in and acquire a U.S. company, they’ve actually increased local staff post-acquisition,” Thilo Hanemann, research director at Rhodium Group, told Huffington Post. “That’s exactly why they come here, because there’s a lack of talented staff back in China and they’re trying to actively tap the talent here in the U.S.”

Expanding into the U.S., boosting the mobile app economy

Despite being flush with capital, an M&A isn’t the only strategy in the pocket of China’s tech elite. They’ve made standalone initiatives in their global expansion with products that reach hundreds of millions of users or offer unique value propositions.

Alibaba has been the biggest story to date, one of these stories of which you might have noticed circled around the company’s U.S. foray with 11main.com – an English language competitor to Amazon and eBay.com that promises “one-of-a-kind items, not available to mass merchants and other large e-commerce sites,” according to Alibaba. 11main.com should be a breath of fresh air for online shoppers in the West for those of us used to the competitive big-box e-tailers out there.

In the same vein, Chinese mobile companies including Dolphin Browser, Sungy Mobile, Cheetah Mobile, Baidu, and Qihoo are building value-driven mobile products (many in the productivity category) – many of which boast hundreds of millions of users (per app) in international markets.

Among the top 10 global companies by iOS and Android downloads according to App Annie’s latest report, you’ll find four Chinese companies, of which two are in the top four. These include Cheetah Mobile, Sungy Mobile, Baidu, and Tencent.

In fact, as Chinese mobile tech companies continue to expand into international markets, U.S. developers are benefitting in turn. China’s mobile advertising spend allocated for acquiring U.S. users grew 401 percent between Q1 2014 and Q2 2014.

Since app developers with U.S. users (and many of these apps with U.S. users were developed by U.S. studios) are paid on a per-download basis by these Chinese advertisers, U.S. developers are benefitting by generating in-app revenue by showing ads from Chinese advertisers.

Not surprisingly, as Chinese advertisers’ ad spend grows 123 percent quarter-over-quarter since Q2 2013, Chinese mobile advertisers are now among one of the most sought after.

In retrospect, with more attention paid to China, the doors to the China market are in turn opening up, giving Western developers access to China’s 700 million mobile users.

Best of all, the Chinese mobile market is maturing and Chinese mobile users are known to be voracious consumers of apps, giving U.S. developers an opportune moment to make a splash in the market. If you’re interested, you’ll be pleased to know that U.S.-made apps including Temple Run 2, Subway Surfers, Fruit Ninja, and Minion Rush were among the top 20 played mobile games (by MAU) in China during Q2 2014, according to AppFlood and TalkingData’s insights.

As they say, it’s better to embrace change than to ignore it. Amid China’s globalization efforts, it’s a great time for those of you in the U.S. to ride the wave and cash in on new opportunities.